Energisa S.A. ($ENGI11)

Good morning, everyone, and welcome to the Energisa Q4 2025 Results Conference Call. Please note that this conference call is being recorded and will be made available on the company's IR website, where the respective presentation is also available. I'd like to highlight that for those that may need simultaneous translation, this feature is available at the Globe icon written Interpretation located at the bottom center area of your screen. When selected, choose your preferred language, Portuguese or English. For those listening the video conference in English, there's an option to mute original audio, Portuguese by clicking on Mute Original Audio. [Operator Instructions] We emphasize that the information contained in this presentation and any statements that may be made during the webcast regarding Energisa's business prospects, projections and operational and financial targets represent the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect Energisa's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I would like to hand the floor to Ricardo Botelho, the company's Chief Executive Officer, to begin our presentation. Ricardo, please go ahead.

Good morning. Thank you, operator. Good morning, everyone. First, I would like to thank everyone for attending this results presentation for the fourth quarter of 2025. Joining me today are our CFO and Investor Relations Officer, Mauricio Botelho, our Vice President and the Investor Relations team. I ask that you review the legal disclaimers at the beginning of the presentation before making any investment decisions. Going to the start of the presentation. In the year that we celebrate 120 years of history, Energisa has shown that experience and relentlessness can and should go hand in hand. We know how to navigate turbulent waters. And more than just weathering them, we advance with financial discipline, focus on execution and courage to innovate, we turn challenges into growth and value for those who trust in our journey. The Operating dynamic, energy landscape that remains long-term vision, execution capability and a keen eye on both the customer and the drivers transformation. In Energisa, we've a strategy built around the concept of energy much potentially where [ Lanterns ] molecules and light coexist [indiscernible] situation [indiscernible] the situation results in real impact, always evolving on the situation of energy and repositioning our portfolio to help our markets. On this road for the next 120 years, we will continue with our strategic positioning, balancing the strength of our core businesses with diversification that is consistent with our vision and competencies that have been with us since our founding. It was this combination of consistency and ambition that allowed us to grow from a regional operation in the early '90s to reaching 97% of the national territory today, serving more than 20 million people and offering including broad portfolio of energy solutions to drive Brazil's economy. Now I hand the floor to Mauricio Botelho, CFO, Investor Relations Officer, to continue our presentation.

Thank you for joining us for another annual results from Grupo Energisa. I will begin by highlighting some results for the period, starting with the factors that most impacted EBITDA and net income in the fourth quarter. Consolidated PMSO decreased 6.1% in the quarter. For the full year, the PMSO reached BRL 4 billion, a reduction of 1.7% compared to the prior year, below the 4.3% inflation rate, indicating a real efficiency gain. In energy distribution, which accounts for the largest share of our PMSO, the decline was 1.6% in the quarter. In the transmission segment, the reduction was 26% and Energisa posted a 20% decline. [ ES Gas ], on the other hand, saw a 12% increase due to the growth of its operations. This consistent cost control reinforces our operational efficiency and reflects management approach guided by cost discipline and value creation across all business lines. The recurring adjusted EBITDA for the fourth quarter 2025 was BRL 2.3 billion, up 21.7% compared to the same quarter of the prior year. For the full year, recurring adjusted EBITDA was BRL 8.2 billion, representing 9.5% growth. Consolidated recurring adjusted net income also reflected our operations even in a challenging interest rate environment. We delivered significant growth of 151% in the quarter, reaching BRL 806 billion. For the full year, net income was BRL 2.1 billion, up 9.5%. Next slide, please. In 2025, we raised BRL 16 billion through strategic funding transactions, including BRL 3.6 billion from exchange [ officer ] and our debt maturity profile, which helped us to work with our debt like 6.6 years. Only in the fourth quarter of '25, we carried BRL 3.5 billion in early issuances of funding originally planned for this year, thereby reducing our financing needs for the typically a more volatile year. We did this in a planned manner, taking advantage of market windows while maintaining financial flexibility. I would also like to highlight that in December 2025, we carry a corporate reorganization of the company's related to broker hedge, which resulted in the consolidation of equity interest under that holding company. Additionally, we exercised the purchased option on a minority stake in EPM cost equity resolving the cash entrapment of BRL 720 million, with a disbursement of BRL 1.2 billion for the acquisition of minority interest. We closed the period with net debt of BRL 32.8 billion and leverage of 3.6x, excluding effects of -- the effects of winding EPM caused the equity instrument, which occurred in the fourth quarter, leverage would stand at 3.3x. Regarding the amortization schedule, our cash position stands at BRL 12.6 billion at the end of 2025, covering short-term maturities for the next few years. The amortization profile is well balanced with greater concentration in the long term, particularly after 2030. Moving now to investments. For the full year, investments came in 2% below the level recorded in the same period of 2024. It was largely driven by the commissioning of transmission projects that had been under construction as well as the proximity of the end of the planned investment cycle for the distributed generation segment. Looking at the Gas segment, we see a different dynamic. ES Gas accelerated its investments and closed the year with 29% growth, the highest CapEx volume in the company's history. This reflects a network expansion, new customer connections and the capture of ongoing opportunities in the Espirito Santo market. This trajectory for ES Gas continues into 2026. We expect to invest approximately 16% more than the amount deployed in 2025, maintaining focus on those 2 key drivers, infrastructure expansion and customer base growth. Last month, we announced to the market our consolidated investment plan for 2026 of approximately BRL 7 billion, a 7% increase compared to last year. One important contributing factor to this increase is anticipated early signing of concession renewals for 4 of our group's key distribution companies, Mato Grosso, Matos Grosso do Sul, Sergipe and Pariba. Of the total planned for 2026, approximately BRL 6.5 billion about -- or about 90% of the investment plan will be directed to electricity distribution companies. These investments follow new regulatory guidelines and are focused primarily on grid modernization with direct impacts on the quality and reliability of supply. Our investment plan remains disciplined. We prioritize projects with adequate and consistent returns aligned with market growth in our concession areas and with the continued improvement of our energy infrastructure. Next slide, please. Turning now to share performances. 2025 was marked by important developments in our relationship with investors. In November, we approved a bonus share issuance in the proportion of 1 like each 10. The transaction was designed to reward shareholders without cash outflow to incorporate share earnings into share capital to simultaneously enhance unit liquidity, also anticipating potential changes in the tax environment. Additionally, a payment of BRL 0.70 per unit was approved as an distribution dividend, advancing the amount originally scheduled for March '26. In this context, [indiscernible] units recorded appreciation of approximately 49% throughout 2025, outperforming utilization over the same period of the shareholder remuneration, the dividend yield in 2025 was approximately 7.6%, maintaining our practice of recurring dividend distributions. Looking at the longer horizon, the total shareholder return since the re-IPO booked in 2026 exceeds 260%, the result of the combination of share price appreciation, dividend payments over the period. We now turn to highlights from energy distribution. In the quarter, we recorded the lowest historical loss levels for fourth quarter with 7 or 9 distributors operating below the regulatory limit. This result reflects the consistency of the structural actions we have been implementing over recent years despite the socioeconomic realities of certain areas that we still face restrictions of greater operational challenges. We also observed the progress in collections. The consolidated 12-month collection rate reached 97.5% the best result for our fourth quarter. On the PDD indicator, we record an improvement of 7 basis points compared to the third quarter of '25, primarily reflecting the consistent collection performance during the period. We continue to expand the use of advanced analytical methods and artificial intelligence, which have enabled us to identify the new revenue recovery opportunities and make our receivables management increasingly efficient. The tariff exemptions for low-income consumers introduced in July '25 contributed approximately 2 basis points to the reduction of the PDD indicator. All indicators that, in fact, remain within regulatory limits throughout the period. One important thing we're highlighting in '25, all of our distributors met the regulatory that in fact targets by grid segment. Furthermore, 7 of our 9 concession areas already have more than 80% of their grid segments operating within the limits established by ANEEL for this year. Moving now to the energy margin and electricity sales. In 2025, we recorded a consolidated growth of 1.4% compared to '24. At first glance, this may appear to be more expansion. However, it's essential to properly contextualize this comparison base. In '24, we saw a growth of 7.6%, the highest in the past 12 years, heavily influenced by exceptionally adverse weather conditions. It was a year marked by significant heat waves and effects associated with El Nino phenomenon. In '25, we observed a normalization of weather conditions. Cooling degree days fell 30% compared to '24 and came in 2.6% below the historical average. Additionally, the percentage of days with temperatures above the maximum was 54% compared to 78% in the prior year. 6 distributors posted consumption growth with particular highlights to Paraiba, Tocantins, Sergipe and Mato Grosso. Growth was geographically diversified, reflecting consistent regional economic dynamism. In transmission, the regulatory EBITDA margin reached 82% in '25, an increase of 6 percentage points compared to the prior year, primarily driven by a 27% reduction in PMSO. We also highlight a significant advance in our project implementation portfolio. We obtained the operation license for the Energisa Amazonas base project, which is in its final implementation phase. And upon entering operation, we reinforced the electrical system of the Greater Manaus metropolitan area. This project has approximately 12 kilometers of transmission line, which 9 kilometers run around, a solution that increases operational safety and reduces infrastructure exposure to external adverse and weather events as well. On energy operation, the project is expected to add approximately BRL 20 million to the company's annual revenue [indiscernible]. I'd like to take this opportunity to highlight the strong results achieved by Voltz. Throughout '25, we conducted an important reorganization of our fintech with changes in management, a review of the organizational structure, cost reductions and adjustments to the product portfolio. The focus on strengthening governance, improving credit discipline and operational efficiency. This works is the beginning to be reflected. Voltz closed the year with a net income of BRL 43 million and a positive cash flow generation, reversing the negative results of prior years. On the front of overdue invoice financing for distributors, we expanded the offering across all channels and revised the credit renting and pricing models. In 2025, more than BRL 100 million in invoice that was renegotiated, broadening payment alternatives for customers, contributing to delinquency management and distributors. We also advanced on aggregated service fronts, expanding integration with partners and with the group customers base. In '25 as well, we launched Fatura Protegida, an insurance product designed to offer customers financial security in the event of unforeseen circumstance, guaranteeing the settlement of energy bills and of course, [ in the event of ] unemployment, disability or like death. The model operates in a fully digital format integrated with Energisa's customer service journeys and so through proprietary channels such as the app, website and self-service kiosks. For suppliers, we advanced receivables anticipation and business credit solutions with progress in digital journey and automation of credit analysis. Throughout the year, Voltz processed more than BRL 2 billion in receivables anticipation and approximately BRL 85 million in business credit. The direction remains to consolidate Voltz as a financial services platform integrated with the Energisa ecosystem, contributing to revenue diversification and value generation for the group. Now speaking about Energisa, I want to reinforce a very clear message. We are executing results recovery and strategic repositioning plan for the platform with a focus on profitability in this plan. In distributed generation, we structure a consistent plan based on 3 main pillars. The first was the restructuring of the sales force. We reorganized the teams, improved the commercial management, increased sales by 28%, focus on productivity, greater efficiency and better regional targeting. Second pillar was customer base quality [indiscernible] by relationship management and preventive actions, which reflected in a 1.3 percentage points reduction in monthly churn and 0.95 percentage points reduction of [indiscernible] delinquency, equivalent of 30% and 25%, respectively. And finally, we also advanced operational efficiency, portfolio adjustments and greater asset management discipline, seeking to maximize the use of installed capacity and reduce PMSO by 13.2% in the quarter. In the value-added service segment that consistent reduction in the PMSO delivered great efficiency gain and contributed to the recovery of EBITDA and net income. We moved from a more [indiscernible] base to [indiscernible] now show traction with EBITDA of BRL 32 million and net income of BRL 15 million, a meaningful advances for the year. We continue to progress with the expansion progress, introduce the commercial clients, seeking more comprehensive customized solutions with a higher level of utilization. And that is precisely where Energisa differentiates itself, delivering high value-added technical services with quality and reliability. In the free market, sales grew 19%, driven by new customer prospecting and base expansion. Given the more challenging environment in the energy trading market, we choose to reposition the operating strategy, reducing exposure to directional trading and prioritizing a more balanced portfolio managed approach. As a result, we reduced the trading book exposure for subsequent years by -- and the results like -- this move helped reduce earnings relating in a scenario of rising prices and already reflecting the performance of the trading company with a recovery of BRL 71 million, 42% in EBITDA between '25 and '24. This repositioning adjust the risk profile of the operating -- operation and establishes a more consistent foundation for the results in the coming cycles in the next few years. Next slide. Talking about ES Gas delivered consistent progress in both its financial and operational indicators, reflecting management discipline and structural advancement of the business. EBITDA Reached BRL 290 million, representing 38% growth compared to '24. Gross margin also showed a positive performance with a 25% expansion of this period. This result was driven primarily by a 15% increase in distributor volume as well as the effects of the ordinary tariff review in August '25. Even following the revision of distribution margins, [indiscernible] industrial customers group today represent 85% of the distributor volume, one of the highest shares in Brazil. According to publicly available data published by third parties, the average reduction in natural gas cost was up to 40% last year, with a vibrant second half, marked by a strong acceleration in investments, network construction and new customer connections. ES Gas recorded its highest CapEx volume in its history. Total investments amounted to BRL 120 million, 29% compared to last year since privatization in July '23. Energisa has already laid the equivalent of 50% of total network within the concession area. At the Norgas distributors, we observed an equally positive dynamic. Gross margin grew 7% for the year, totaling BRL 560 million. EBITDA reached BRL 371 million, a 15% increase compared to the prior fiscal year. For Energisa, the equity income result was BRL 96 million for the year, reinforcing the consistent contribution of the investment to the consolidated results. Norgas made net payments of dividends and interest on equity of BRL 218 million, of which BRL 48 million was paid in '24 and BRL 107 million in '25, a significant year-on-year increase of 256%. We are already beginning to see the first concrete effects of implementing best management, regulatory and operational practices brought by Energisa. The evolution of the indicators demonstrates greater efficiency, better margin capture and disciplined execution. This performance validates the strategic soundness of our capital allocation to the segments, reinforcing our operation that natural gas is a significant avenue for growth and sustainable value for generation for the group. It is with great satisfaction that this month of March, our commercial biomethane plant, AGRIC begins operations. This represents an important milestone for the group and reinforces our positioning as a provider of comprehensive low-emission energy solutions. Total investment in the project was BRL 138 million with the majority concentrated in '25. The capacity to process 120,000 tons of organic waste per year, producing 25,000 cubic meters of biomethane per day and 50,000 tons of organic fertilizer annually. February this year, we launched EBO [indiscernible], our new organic-based fertilizer produced at both of the group's plants. This product embodies the integration between energy and agribusiness, reinforcing Energisa's presence in sustainable solutions for the sector, particularly relevant at a time where fertilizer supply is becoming increasingly important for the country. More than a stand-alone assets, our biosolutions platform represents a growth avenue aligned with decarbonization trends and energy matrix. Diversification expands our portfolio, strengthen our presence in the Gas segment, our industrial waste disposal services and biofertilizers and consolidates our position as a company capable of integrating infrastructure and innovation with a sustainable circular economy model. This concludes our main highlights for the quarter. And I'd like to open the Q&A session. Operator, please go ahead.

[Operator Instructions] Our first question comes from Daniel Travitzky, sell-side analyst from Safra.

I have 2 questions. First one is you talk about the opportunities through the auctions, including the capacity reserve and transmission. We also like to understand Energisa's angle on these auctions, how you guys check on these auctions, these opportunities, talk about like shares. I saw like a growth on the company's indebtment this quarter. How we talk about this leverage in the indebtment like max or something that you guys aim to be comfortable to be operating assuming the opportunities that we have here on the market and obviously, talk about the distribution of dividends.

Daniel, I'm going to be splitting your answers. I'm going to be starting with the second one, okay, about indebtment. So this growth, it's a temporary show on the leverage because we did a lot of investments in '25 to adapt our pattern -- quality patterns on the concessions. As you can see that we already reached the level of 25% of the subgroups in all the concessions. Obviously, we have an environment of like the tariff [indiscernible]. I'm going to check about this. And on the decrease of this, we're going to be working this on the short term. It's going to be less, but we're going to be working on decreasing these expenses. And that's a natural cycle that we're going to be working on the readjustment and revisions on the tariffs for the next few years. They're going to be incorporating our assets or recovering on [indiscernible] like on Parcel A. Just to remember that we a -- had the option of to take out some actions and when we got our [indiscernible] cash options and again went through a holding with greater efficiency on operational reductions of declaring level of the company? We are close to the level of low risk company at 3.5x. So we're coming in line in our levels. And it's below our [indiscernible]. We believe that in time, we're going to be able to have a reduction on this level. And now on the first question, can you -- would you like to talk about this?

About the auctions, right? Yes, we always see the options on capital allocation. But on this environment of like of tariffs and returns less attractive that we see on transmission, that is not like worthwhile for the company to be considering this additional investments in the transmission, but this doesn't mean that we're not going to be looking at this. But right now, we believe that it's not the -- our priority to allocate the monies on the situational interest that we have in the market at this moment.

Just a comment, if possible on the auction of the reserve auctions and capacity, anything that we think is going to be like good for us check different from the transmission one. We don't like work in generation today that allows us to look at this part. What we have interest in is that this auction that we have like winners that are going to be connected with our gas distributors. Consequently, this is going to be generating revenue, incrementing to distributors on the tariff usage on the transmission situation. Our biggest interest is the that [indiscernible] they win the auctions. And we, of course, as a company that is situated on energy, we -- also that those assets are going to be allocated on the system to increase our availability of energy given that we have an environment ideologically really volatile environment in a certain way, it shows -- it creates more volatility in the great introduction on renewable energy, uninterrupted like solar energy. So we have like a -- we wait that this capacity is going to be acquired and increase implemented that helps the system. For the next auctions, we're examining on the batteries. That is something that we are studying with to evaluate the possibilities on the markets, on an emerging situation on application -- of application.

[Operator Instructions] Our next question comes from Lucas [indiscernible] sell-side analyst from UBS.

Thanks for the results, especially on the distribution situation. My doubt it comes from talking about leverage. And when we look at your covenants that had a growth of 3.6% and it was just an indicator just by VNR and the covenant comes to 3.8%. So we're going to be seeing this reduction of EBITDA within the time comes by with the renewals of the concessions. So my question is on the capital situation. Do you believe on anything to level this on the transmission? And if you have any offer to those possibilities that you consider in talking about the linear on the offers. Are you guys considering this? And the other point I would like to ask about the leverage level. Can it press the CapEx for the next few years?

Similar to the same line that we talk with Daniel, we see the structure of capital adequate, still adequate within the patterns of how that we expect. We are always analyzing and we said this like a lot of times, always analyzing the opportunities on the market. So this can be a front for us. But at the same time, all the investments that we've made in the last few years, they're going to be turning on cash generation from here on. So we have a like something [indiscernible] that -- on this indicator because you're looking only a photograph like a pro forma like with numbers without VNR. [indiscernible] we have VNR. So we have some concessions that VNR are going to be 0 or other concessions. They're going to be circulating with VNR. So it's going to be carrying something. We have like an increase in the temporary increase acting like the signage of the contracts, concession contracts, but all within numbers for us to work with the operations, we don't see like anything impacting our program of CapEx that has been like told.

[Operator Instructions] Our next question comes from [ Glen Kowal ]. I am going to read question from [ Glen Kowal ] due to technical issues. Are you guys getting ready to the -- to reform, especially, [ Sergipe ]. Which are the main impacts?

We're going to be sending the question to [indiscernible].

Glen, Thanks for the question. The company we're going to be talking about this in terms of reform with the priorities. So we're talking like the mapping, the process, the impacts on all the verticals that we are going to be working with. A specific case of GD, we have opportunities, an impact they're going to be showing on the expenses and some about revenue, but the final results on the impact that we're going to be having on this. We should -- don't have like anything definitive. So we're finalizing this analysis.

[Operator Instructions] Without further questions, we end our Q&A session. We end this, our earnings conference call for the fourth quarter of 2025 from Energisa. And [indiscernible] and our Investor Relations will be able to answer any other questions now. Thank you to all the participants, and have a good afternoon.